SIGNIFICANT RESERVES IDENTIFIED AT CAMBAY FIELD, INDIA

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1 6 th September 2010 Company Announcements Office ASX Limited 4 th Floor 20 Bridge Street Sydney NSW 2000 SIGNIFICANT RESERVES IDENTIFIED AT CAMBAY FIELD, INDIA Summary Cambay Field Reserves and Contingent Resources significantly upgraded Successful completion of detailed technical studies to unlock potential of tight reservoirs using leading-edge North American shale gas industry technology Studies indicate a very good correlation between the Cambay Eocene reservoirs and the Eagle Ford and Haynesville tight/shale plays in the USA Drilling and production tests through the first half of 2011 Oilex Ltd ( Oilex, ASX: OEX, AIM: OEX) an oil & gas exploration and production company listed on AIM and ASX, is pleased to announce a significant upgrade to its Reserves and Contingent Resources for the Cambay Field low permeability ( tight ) Eocene reservoirs in Gujarat, India. This follows a nine month program of extensive technical studies on the Cambay Field tight reservoirs using proprietary low permeability reservoir technologies derived from similar tight/shale gas projects in North America. The following summary of Reserves (net recoverable to Oilex s 45% interest, unaudited) is provided: P billion cubic feet (BCF) of gas and 11 million barrels (MMbbls) of condensate P BCF of gas and 17 MMbbls of condensate P BCF of gas and 27 MMbbls of condensate In its evaluation of the reserves and resources the Company was advised by two North American companies; NuTech Energy Alliance ( NuTech ) a leader in advanced petrophysical, geological and fracture stimulation solutions for tight and shale gas reservoirs, and Morning Star LLC ( Morning Star ), a worldwide petroleum consulting group with expertise in reserve certification of tight reservoir projects. The studies indicate a very good correlation between the Cambay Eocene reservoirs and the Eagle Ford and Haynesville reservoirs, two of the most prolific tight/shale gas plays in North America. The Cambay Eocene reservoirs that have been analysed display relatively good porosity for "tight' reservoirs and with a gross thickness of 200 to 500 metres these zones are substantially thicker than most North American tight/shale reservoirs. The studies have modelled Estimated Ultimate Recoveries (EUR s) of between 6 and 11 BCF gas with associated condensate per well. Forward Plan Oilex expects to submit data in October 2010 for independent reserves certification in early Oilex will, subject to Joint Venture and Indian Government approval, further evaluate the tight reservoir potential with drilling and production testing using modern, multi-stage fracture stimulation ABN Level 2, 50 Kings Park Road West Perth WA 6005 Australia, PO Box 588 West Perth WA 6872 Australia Telephone: (+61 8) Facsimile: (+61 8) oilex@oilex.com.au Web:

2 technology. These operations are expected to continue through the first half of 2011 as equipment and materials become available. Commentary Oilex s Managing Director, Dr Bruce McCarthy (ex-cairn Energy), who has been based in India to lead the tight reservoir project, said, The Company has renewed its focus on India and has made significant progress in unlocking the potential of the Cambay tight Eocene reservoirs that extend over the 40,000 acre contract area. Key to this success has been applying leading-edge North American tight/shale gas industry expertise and proven technology to the extensive database on the Cambay Eocene reservoirs which includes: modern 3D seismic, wire line logs from 36 wells, drilling data, production and well test data and cores. Two years ago Oilex conducted well tests on the Eocene section that flowed hydrocarbons to surface from conventional vertical wells, a very encouraging result for tight reservoirs. Oilex now intends to apply horizontal drilling and multi-stage fracture stimulation technology to improve on the flow rates and confirm commerciality of the Eocene tight reservoirs. Reserve and Resource Estimates The following tables summarise the net (Oilex 45%) reserves and contingent resources for the Cambay Field tight Eocene reservoirs at 6 September These estimates have been prepared in accordance with generally accepted engineering and evaluation principles set forth by the Society of Petroleum Engineers (SPE) PRMS guidelines and are classified as Reserves Justified for Development and Contingent Resources Development Pending. The probabilistic unaudited estimates have been prepared by Oilex with advice from NuTech and Morning Star. It is the Company s view that the P90, P50 and P10 estimates prepared correspond to proved, proved plus probable, and proved plus probable plus possible reserves respectively under the ASX Listing Rules. The estimates have not been endorsed by the Government of India or the Directorate General of Hydrocarbons, India. Oilex will commission an independent reserves certification after completion of further technical studies, well designs and well locations, in October,2010. Summary of Reserves Reserves Justified for Development Attributable to Oilex Net Working Interest (45%) Probability P90 P50 P10 Natural gas (BCF) Condensate (MMbbls) Net reserves presented above include Government share of production applicable under the PSC. Summary of Contingent Resources Contingent Resources Development Pending Attributable to Oilex Net Working Interest (45%) Probability P90 P50 P10 Natural gas (BCF) Condensate (MMbbls) Net contingent resources presented above include Government share of production applicable under the PSC. Oilex (45%) operates the Cambay Field Production Sharing Contract on behalf of its Joint Venture with Gujarat State Petroleum Corporation Ltd (55%, GSPC ). GSPC is India's most active State Government-owned oil and gas company. It is a large vertically integrated energy company with assets across India and overseas. 2

3 Further information can be found on the Company s website including a background paper titled Potential of the Cambay Field Low Permeability Reservoirs. For further information, please contact: Oilex Ltd +61 (0) (Western Australia) Bruce McCarthy Managing Director oilex@oilex.com.au Ben Clube, Finance Director bclube@oillex.com.au Read Corporate Nicholas Read nicholas@readcorporate.com.au +61 (0) (Western Australia) Conduit PR +44 (0) (UK) Paul Youens paul@conduitpr.com +44 (0) (UK) Jonathan Charles jonathan@conduitpr.com +44 (0) (UK) RFC Corporate Finance Ltd Stuart Laing stuartl@rfc.com.au +61 (0) (Western Australia) About Oilex Oilex Ltd is an AIM and ASX-listed (ASX and AIM: OEX) oil & gas exploration and production company based in Perth, Australia. The Company s main area of focus is in India where it operates three onshore production sharing contracts in Gujarat on behalf of Joint Ventures with Gujarat State Petroleum Corporation Ltd (GSPC). Of these, the Cambay Field licence has considerable oil and gas resources and Oilex intends to further evaluate and exploit these through proven North American shale gas technology, including horizontal drilling and fracture stimulation. Oilex s, Managing Director, Bruce McCarthy (ex-cairn Energy) is currently based in Gujarat to manage this project and the Company s other Indian interests. In addition to the Cambay Field, Oilex has interests including the exploration permits WA-388-P, North-West Shelf, offshore Australia that has large gas potential and JPDA in the Timor Sea. About Gujarat and the Indian Gas Market The Cambay Field is located in the heart of Gujarat s industrial corridor. Gujarat is the "growth engine of India" one of the fastest growing and most industrialised states in India. During the period , average GDP growth rate in Gujarat was 10.4% per annum and average industrial growth rate was 12.3%. Gujarat is India s largest producer of petroleum products and chemicals (respectively 58% and 53% of the national total) with the world s third largest petroleum refinery located at Jamnagar. Gujarat has major industries in textiles, plastics, food processing salt and soda ash production. Its ports are a major gateway for India s international trade and it has two LNG terminals located in the Gulf of Cambay. (source: GIDB international road show presentation). Gas demand in India is rising fast with increasing gas fired power generation capacity. Total gas consumption in India is expected to grow from 1.7 TCF per annum in 2009 to more than 3.1 TCF per annum in 2014 with forecast gas use in power generation is expected to grow from 0.8 TCF per annum to around 1.4 TCF per annum over the same period. Gas imports are forecast to increase to around 1.6 TCF pre annum by 2019, largely in the form of LNG, as demand outstrips the pace of domestic supply. (source: Business Monitor International India Oil and Gas Report Q2 2010). This is the release referred to in OEX request for a trading halt on 6 September Information in this report relating to hydrocarbon reserves or resources has been compiled by Mr Ray Barnes B.Sc. (Hons), the Technical Director of Oilex Ltd who has over 37 years experience in petroleum geology and is a member of the AAPG. Mr Barnes consents to the inclusion of the information in this report relating to hydrocarbon reserves and resources in the form and context in which it appears. Resource estimates contained in this report are in accordance with the standard definitions set out by the Society of Petroleum Engineers, Petroleum Resources Management System,

4 POTENTIAL OF THE CAMBAY FIELD LOW PERMEABILITY RESERVOIRS BACKGROUND INFORMATION Overview The Cambay Field contract area comprises 161km 2 onshore Gujarat, India and contains thick, overpressured low permeability ( tight ) reservoirs in the Eocene section. The top of the Eocene is at a depth of 1,400 metres to 1,700 metres below the surface. Oilex operates the Cambay Field Production Sharing Contract (PSC) on behalf of its Joint Venture with Gujarat State Petroleum Corporation Ltd (GSPC). The Cambay Field is located in the heart of Gujarat s industrial area and Gujarat is one of India s fastest growing and most industrialised states with a large and increasing demand for gas and energy. Gujarat has a state wide gas grid in operation connecting major cities and industrial centres. Oilex had previously identified the low permeability Eocene reservoirs as a potentially underexploited section when it acquired its interest in the Cambay Field. Between 2006 and 2008, the Joint Venture acquired 3D seismic over the entire contract area and drilled and tested the tight reservoirs using conventional techniques in five wells. From these well results, Oilex concluded that technology and expertise developed in recent years in the growing North American tight/shale gas industry could be applied effectively to the tight oil and gas reservoirs at Cambay to improve productivity. Oilex has recently completed a nine month program of extensive technical studies on the Eocene section using specialist low permeability reservoir evaluation technologies. Proprietary log techniques developed by NuTech Energy Alliance ( Nutech ) have indicated that, compared to conventional evaluations that were carried out in the past, a far thicker section of the Cambay Eocene reservoirs is hydrocarbon-saturated and contains no free water. As part of the technical studies program, Oilex has prepared unaudited reserve and resource estimates which confirm that the potential of the Eocene tight reservoirs is substantial. Oilex will, subject to Joint Venture and Government of India approval, further evaluate the potential with drilling and multi-stage fracture stimulation in Resource Estimates Oilex has prepared unaudited reserve and resource estimates for the low permeability Eocene reservoirs in the Cambay Field PSC. These estimates have been prepared in accordance with engineering and evaluation principles set forth by the Society of Petroleum Engineers (SPE) PRMS guidelines that are used globally by the oil and gas industry for reporting reserves and resources. The Company was advised by NuTech, a leader in advanced petrophysical, geological and fracture stimulation solutions for tight and shale gas reservoirs, and Morning Star LLC ( Morning Star ) a worldwide petroleum consulting group with expertise in reserve certification of tight reservoir projects. The reserves and contingent resources for the Cambay Field low permeability Eocene reservoirs at 6 September 2010 are summarised in the tables below. These estimates are presented as volumes net to Oilex working interest. These estimates have been prepared in accordance with generally accepted engineering and evaluation principles set forth by the Society of Petroleum Engineers (SPE) PRMS guidelines and are classified as Reserves Justified for Development and Contingent Resources Development Pending. The probabilistic unaudited estimates have been prepared by Oilex with advice from NuTech and Morning Star. It is the Company s view that the P90, P50 and P10 estimates prepared correspond to proved, proved plus probable, and proved plus probable plus possible reserves respectively under the ASX Listing Rules. The estimates have not been endorsed by the Government of India or the Directorate General of Hydrocarbons, India. 4

5 Summary of Reserves Reserves Justified for Development Attributable to Oilex Net Working Interest (45%) Probability P90 P50 P10 Natural gas (BCF) Condensate (MMbbls) Net reserves presented above include Government share of production applicable under the PSC. Summary of Contingent Resources Contingent Resources Development Pending Attributable to Oilex Net Working Interest (45%) Probability P90 P50 P10 Natural gas (BCF) Condensate (MMbbls) Net contingent resources presented above include Government share of production applicable under the PSC. In generating the above reserve and resource estimates for the low permeability Eocene reservoir section, Oilex with the support of its consultants completed technical studies including; petrophysical evaluation of 36 well logs that penetrated the Eocene section using NuTech's proprietary low permeability software applications that give critical reservoir characteristics which are fundamental to generating estimates of hydrocarbon-in-place volumes in tight reservoirs; application of the results of the petrophysical analyses to model optimal fracture stimulation well completion designs and associated production profiles; re-processed and re-interpreted block wide 3D seismic data including enhanced seismic products; comparative studies by experts who are able to identify analogues from their experience with tight gas producing areas in North America; probabilistic in-place volume and recoverable resource estimates. FIGURE 1 CAMBAY FIELD W-E COMPOSITE CROSS SECTION AND TOP EOCENE DEPTH MAP AND LINE OF SECTION 5

6 Three tight pay zones (X, Y and Z zones) within a gross interval of 200 to 500 metres thickness, have been defined in the over-pressured Cambay Eocene sequence. These zones can be reliably correlated across the contract area and the character is consistent, as expected from rocks of this type and the depositional environment. Rocks that were considered to have no commercial significance ("non-pay" in conventional log analysis) have been re-interpreted as hydrocarbon bearing using the NuTech technology and by analogy with the North American "tight/shale gas" deposits. NuTech techniques enable accurate evaluation of wireline log data to determine the proportionate volume of moveable water and moveable hydrocarbon in the Cambay Eocene reservoirs. Fracture stimulation programs have been designed that are tailored to the particular Cambay Eocene fluid and rock type. These designs have been proven in basins such as Eagle Ford and Haynesville in southern USA which are close analogues for the major parts of the Eocene hydrocarbon-bearing section. Consequently, the prospective pay section in Cambay Field has increased dramatically from a few thin zones to thick continuous zones that have the capacity to hold large volumes of hydrocarbons which, again by analogy with US producing basins, can be developed with application of the appropriate technology. Previous production history from wells that have flowed hydrocarbons to surface on test and 36 well penetrations is strong evidence to support the interpretation of commercially recoverable hydrocarbons from the X and Y zones. Other evidence includes seismic and log interpretations indicating continuity of these formations and the potential for commercially recoverable hydrocarbons below the lowest known gas. This evidence also demonstrates the X and Y zones are continuous with similar geological character across most of the contract area. Of the 36 wells that have penetrated the Eocene section, a number have intersected the Z zone and have gas and condensate shows recorded while drilling and indications of hydrocarbon saturations from the NuTech analyses of well logs and other data. However, no flow or fluid composition data has been recovered from successful well tests. Several wells have indirectly indicated the potential for movable hydrocarbons by encountering well control issues while drilling, for example Cambay-40 at TD. NuTech has identified analogues in North America that have similar reservoir properties to the Z zone and have been developed using horizontal wells and multi-stage fracture stimulation as part of commercial projects. The deeper section below the base of Z zone as mapped by Oilex has exciting future potential. Cambay-40, the deepest well in the block which was drilled in 1963, had gas and condensate recorded below the Z zone at TD of 3,230m. The section below the base of Z zone is predicted to be up to 2,000 metres thick in the deepest parts of the basin within the Cambay contract area. This deeper section has not been extensively evaluated as part of the technical studies program because there are only two vintage wells penetrating it. However it is expected that it will be included as a prospective resource in the future once further work has been completed. Cambay Field Forward Plan In the coming months Oilex will incorporate all relevant data into a stochastic 3D fine grid volumetric model. This model will incorporate petrophysical data from all 36 wells, a seismic inversion cube and special and routine core analysis. The 3D seismic reprocessing program covering the entire contract area is underway to help identify high potential areas that may be present in the Eocene low permeability reservoir section. Upon completion of all the remaining technical studies, Oilex will be in a position to refine recoverable hydrocarbon estimates and submit these for independent certification. It is anticipated this will be completed in early Key to the commercial development of the Cambay Eocene reservoirs will be successfully applying completion techniques that are common in USA and Canada. A drilling program to demonstrate the potential of the tight gas reservoirs will be undertaken subject to Joint Venture approval. Preliminary well design and planning is already underway in collaboration with NuTech, Morning Star and Advance Well Technologies ( AWT ). Since March 2010 Bruce McCarthy, Oilex s Managing Director, has been based in India to lead activities in relation to the Eocene low permeability reservoir project and to prepare for drilling operations. 6

7 North American Tight/Shale Gas Industry Significant technological improvements in drilling, well stimulation, and well logging techniques made in the USA and Canada particularly over the last decade have made shale and tight gas deposits increasingly viable. The USA has extensive tight/shale gas deposits that have been estimated to have a total resource potential of between 500 to 1,000 TCF. At present, shale gas comprises approximately 10% (2.0 TCF per annum) of the daily consumption in the USA and is predicted to rise dramatically with some analysts predicting that shale gas will comprise up to 50% of the total natural gas production in North America by As conventional oil and gas reservoirs are depleted in those basins, inevitably, unconventional gas reservoirs will be developed. The key to successful development will be the proper application of existing technologies and the continued development of new technologies. Many basins worldwide contain large volumes of tight gas resources that have not been assessed. The emergence of shale gas as a competitive alternative is changing the international gas landscape and is starting to lower the outlook for global LNG demand growth. FIGURE 2: MAP OF SHALE GAS DEPOSITS IN USA SOURCE ENERGY INFORMATION ADMINISTRATION UPDATED MAY 2009 The shale gas expansion in North America has been driven by developments in fracture stimulation or hydraulic fracturing technology. Hydraulic fracturing allows the creation of extensive artificial fractures by pumping water into the well bore at a sufficient pressure. This increases the surface area exposed and creates permeability or pathways for hydrocarbons to flow into a well bore which is crucial in very low permeability or tight rocks, such as shales and siltstones. Combined with horizontal drilling, hydraulic fracturing usually results in greatly increased production rates as more rock surface area is exposed to the well bore. Shale gas tends to cost more to produce than gas from conventional wells due to the expense of fracture stimulation and horizontal drilling. However, with large shale deposits, economies of scale can be achieved as knowledge and efficiency improves with repeat drilling. Shale deposits are also likely to be commercially attractive when they are located close to gas infrastructure and where a strong gas market exists. 7

8 FIGURE3: SCHEMATIC OF HORIZONTAL WELL SHOWING 5 STAGES OF FRACTURE STIMULATION AND AERIAL VIEW OF FRACTURE STIMULATION OPERATION North American Shale Gas Analogues With the assistance of Morning Star and NuTech, Oilex undertook a comprehensive study to identify North American tight/shale plays that are good analogues for the Cambay Field Eocene reservoirs. The Cambay Eocene reservoirs appear to be most analogous to reservoirs in the Haynesville and Eagle Ford Basins in Texas, two of the most prolific tight/shale gas plays in North America. FIGURE 4: COMPARISON OF CAMBAY PSC WITH NORTH AMERICAN TIGHT/SHALE GAS BASINS Gas Shale Basin Barnett Fayettevill e Eagle Ford Eocene- Haynesvill Cambay PSC e Marcellus Woodford Antrim New Albany Estimated Basin Area, square miles 5,000 9,000 12, PSC area only 9,000 95,000 11,000 12,000 43,500 Depth, metres 1,980-2, ,135 2,895-3,260 1,675-2,440 3,200-4,115 1,220-2,590 1,830-3, Net Thickness, metres Total Organic Carbon, % Total Porosity, % Well spacing, acres Original Gas-In- Place, TCF NA , Technically Recoverable Resources/Basin, TCF NA 4 PSC area only Technical Recovery factor 13% 80% NA ~10% 35% 17% 50% 26% 12% 8

9 The Eocene Cambay reservoir shows a reasonably good correlation with the Eagle Ford and Haynesville on key parameters such as clay content, total organic carbon, porosity and depth. The material distinguishing feature of the Cambay Field Eocene reservoir is the substantially greater thickness of the reservoir compared with all of the North American shale gas deposits TOTAL CLAY BAKKEN OILEx EOCENE FIGURE 5: CLAY CONTENT OF NORTH AMERICAN SHALE PLAYS AND CAMBAY EOCENE RESERVOIR TOTAL QUARTZ BARNETT EAGLE FORD HAYNESVILLE TOTAL CARBONATE Tight Gas Expertise Oilex has used technology and skills in low permeability reservoirs from leading experienced consulting groups to support its Indian business. These capabilities enable Oilex to identify and evaluate low permeability reservoirs and to design and implement tailored drilling and completion programs. With these capabilities Oilex is well positioned to exploit the full potential of its Cambay field, as well as evaluate other tight reservoir opportunities that may arise within India. NuTech has signed a Memorandum of Understanding (MOU) with Oilex. Under the intended final alliance style agreement, Oilex will have the exclusive use of NuTech expertise and technology in India. Houston based NuTech is a leader in the development and application of advanced petrophysical, geological and engineering solutions to oil and gas companies worldwide, using proprietary software and modelling processes. With a database of over 45,000 wells, NuTech has an exceptional knowledge, skill base and record of performance in evaluating and designing of stimulated well completions for tight reservoirs. Morning Star is working closely with Oilex and NuTech on the Cambay project. Morning Star is a worldwide petroleum consulting group with expertise in resource and reserve assessment and independent certification experience in shale gas. Morning Star is assisting Oilex in preparing a comprehensive data package to submit for independent reserves certification. Advance Well Technologies ( AWT ) is providing Oilex with the capability to implement the technical advice for Cambay drilling and production operations. AWT is an experienced well engineering and oilfield operations group based in Australia with a strong background in the design and implementation of drilling programs to maximise recovery from tight reservoirs. AWT is currently operating in India at various locations. Gujarat The Cambay Field is located in the heart of Gujarat s industrial region. Gujarat is one of the fastest growing and most industrialised states in India. During the period , average GDP growth rate in Gujarat was 10.4% per annum and average industrial growth rate was 12.3%. Gujarat is India s largest producer of petroleum products and chemicals (respectively 58% and 53% of the national total) with the world s third largest petroleum refinery located at Jamnagar. Gujarat has major industries in textiles, plastics, food processing salt and soda ash production. Its ports are a major gateway for India s international trade. (source: GIDB international road show presentation). Gujarat also lies at the centre of the Delhi-Mumbai Industrial Corridor, an Indian Government project to develop a major global manufacturing and trading hub in India. A large share of the 9

10 estimated US$90 billion of infrastructure projects will be within Gujarat. (source: GIDB international road show presentation). Gas Market and Infrastructure Indian gas demand is rising fast with increasing gas fired power generation capacity in planning or development phase. Total gas consumption in India is expected to grow from 1.7 TCF per annum in 2009 to more than 3.1 TCF per annum in 2014 with forecast gas use in power generation expected to grow from 0.8 TCF per annum to around 1.4 TCF per annum over the same period. Gas imports are forecast to increase to around 1.6 TCF pre annum by 2019, largely in the form of LNG, as demand outstrips the pace of domestic supply. (source: Business Monitor International India Oil and Gas Report Q2 2010) With an expanding industrial sector and a pipeline of proposed power plants in Gujarat, there is strong demand for gas. Total electricity consumption growth has been over 8% per annum. Recently naphtha has been imported (at high cost) for power generation due to gas supply shortages. Local gas contract prices in excess of $6 per MMSCF are known to exist. FIGURE 6: GUJARAT INFRASTRUCTURE AND INDUSTRY MAP FIGURE 7: CAMBAY BASIN - INFRASTRUCTURE AND OIL AND GAS FIELDS 10

11 Gujarat was the first Indian state to establish a gas pipeline network. It has approximately 1,200 kilometres of gas grid in operation and around 800 kilometres under planning or construction. The network connects major cities and industrial centres. There is spare capacity in the gas network and legislative provision for third party access. Further expansion of the grid will connect additional centres in Gujarat and beyond including Delhi. (source: GIDB international road show presentation). The existing Cambay Field facilities are about 10 kilometres from the main gas pipeline spur. The Cambay Field has an existing infrastructure of decommissioned gas pipelines and gas gathering station. Cambay Field History Oilex operates the Cambay Field Production Sharing Contract in the Cambay Basin onshore Gujarat, India on behalf of its Joint Venture with Gujarat State Petroleum Corporation Ltd. The contract area was previously explored and developed by Oil and Natural Gas Corporation (ONGC), India s largest State owned oil and gas company in the period from 1957 through to 1980 s. However it was developed as a gas field mainly from the shallower Oligocene (OSII) reservoirs in the southern part of the contract area. Since its inception, the Cambay Field has produced about 52 billion cubic feet of gas until it was shut-in in the early 1990 s due to water and sand production problems. ONGC drilled over 30 wells to variable total depths through the Eocene tight reservoirs, using conventional drilling and completion technology. The deepest well, Cambay-40 was drilled in 1963 to a depth of more than 3,200 metres with gas shows at Total Depth. The flow rates from conventional tests in the Eocene section of the various wells were relatively low, in the range of 0.3 to 2.7 MMSCF/day and production volumes were minimal. Oilex had previously identified the low permeability Eocene reservoirs as a potentially underexploited section when it acquired its interest in the Cambay Field. Between 2006 and 2008 Oilex drilled and tested these tight oil and gas reservoirs using conventional techniques. From these well results, Oilex concluded that proprietary technology and expertise developed in recent years in the growing North American shale gas industry could be applied effectively to the tight oil and gas reservoirs at Cambay to improve productivity. From late 2009, Oilex started the detailed technical study program referred to previously to evaluate the Eocene low permeability reservoir section and has started initial planning and design work for appraisal and development wells that will also acquire critical reservoir and production information. Details of the technical studies have been reviewed with the Cambay Field Joint Venture and the Directorate General of Hydrocarbons, the government regulatory body in India. On completing the final stage of technical studies, the Joint Venture will be in a position to refine in-place volume estimates and submit final recoverable hydrocarbon estimates for independent certification. A drilling program to prove the potential for commercial development of the tight gas reservoirs will be undertaken subject to Joint Venture approval and availability of the appropriate rigs and services. Dr Bruce McCarthy, Oilex s Managing Director, has been based in India since March 2010 to prepare for potential field operations in the low permeability Eocene reservoirs. These operations will be part of work programs and budgets that are subject to Joint Venture and Government of India (DGH) approvals. 11

12 LIST OF ABBREVIATIONS AND DEFINITIONS USED HEREIN Associated Gas Bbls BCF BOE BOPD BS&W Deterministic Estimate GOR MMSCF/DAY MMbbls Contingent Resources Natural gas found in contact with or dissolved in crude oil in the reservoir. It can be further categorized as Gas- Cap Gas or Solution Gas. Barrels of oil or condensate Billion Cubic Feet at standard temperature and pressure conditions Barrels of Oil Equivalent. Converting gas volumes to the oil equivalent is customarily done on the basis of the nominal heating content or calorific value of the fuel. Common industry gas conversion factors usually range between 1 barrel of oil equivalent (BOE) = 5,600 standard cubic feet (scf) of gas to 1 BOE = 6,000 scf. (Many operators use 1 BOE = 5,620 scf derived from the metric unit equivalent 1 m³ crude oil = 1,000 m³ natural gas). barrels of oil per day base, sediment and water contaminants in oil The method of estimation of Reserves or Resources is called deterministic if a discrete estimate(s) is made based on known geoscience, engineering, and economic data. Gas to oil ratio in an oil field, calculated using measured natural gas and crude oil volumes at stated conditions. The gas/oil ratio may be the solution gas/oil, symbol Rs; produced gas/oil ratio, symbol Rp; or another suitably defined ratio of gas production to oil production. Volumes herein measured in scf/bbl. million standard cubic feet (of gas) per day million barrels of oil or condensate (recoverable) Those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations by application of development projects, but which are not currently considered to be commercially recoverable due to one or more contingencies. Contingent Resources may include, for example, projects for which there are currently no viable markets, or where commercial recovery is dependent on technology under development, or where evaluation of the accumulation is insufficient to clearly assess commerciality. Contingent Resources are further categorized in accordance with the level of certainty associated with the estimates and may be sub-classified based on project maturity and/or characterized by their economic status. Development Pending - A discovered accumulation where project activities are ongoing to justify commercial development in the foreseeable future. Development Unclarified or on Hold A discovered accumulation where project activities are on hold and/or where justification as a commercial development may be subject to significant delay. Prospective Resources Those quantities of petroleum which are estimated, as of a given date, to be potentially recoverable from undiscovered accumulations Reserves are those quantities of petroleum anticipated to be commercially recoverable by application of development projects to known accumulations from a given date forward under defined conditions. Proved Reserves are those quantities of petroleum, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable, from a given date forward, from known reservoirs and under defined economic conditions, operating methods, and government regulations. Probable Reserves are those additional Reserves which analysis of geoscience and engineering data indicate are less likely to be recovered than Proved Reserves but more certain to be recovered than Possible Reserves. Reserves Possible Reserves are those additional reserves which analysis of geoscience and engineering data indicate are less likely to be recoverable than Probable Reserves.3P P90 refers to the quantity for which it is estimated there is at least a 90% probability the actual quantity recovered will equal or exceed; P50 refers to the quantity for which it is estimated there is at least a 50% probability the actual quantity recovered will equal or exceed; and P10 refers to the quantity for which it is estimated there is at least a 10% probability the actual quantity recovered will equal or exceed. SCF/BBL TCF Tight Gas Reservoir standard cubic feet (of gas) per barrel (of oil) Trillion Cubic Feet The reservoir cannot be produced at economic flow rates or recover economic volumes of natural gas unless the well is stimulated by a large hydraulic fracture treatment, a horizontal wellbore, or by using multilateral wellbores 12